Motilal Oswal - Geometric Software

Motilal Oswal recommends Neutral On Geometric Software @ 100 With Target Price 105

 

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Aarvee Denim and Exports

Aarvee Denim and Exports 
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs206
Current market price: Rs135

Dressed to kill

Key points

• Globally denim capacities are shifting from the high-cost areas like the USA to the low-cost areas like India. Second, as a result of the removal of quotas garment manufacturing capacities are also coming up in the country. 
• With its population of one billion India is a big market for Aarvee Denim and Exports as most of it is still untapped. What's more this market is growing at 10% per year with denim finding more uses (ladieswear, children wear, accessories like bags, belts, etc) and becoming a rage even in towns and villages due to its affordability. 
• We expect Aarvee to benefit from these developments, as it is one of the lowest-cost manufacturers in the country and would consolidate its No 2 position by expanding its capacity by more than 50% from 47 million metre to 72 million metre per year. 
• As a result of the softening of cotton prices due to a bumper cotton harvest and savings in power & fuel costs the company's earnings before interest, depreciation, tax and amortisation (EBIDTA) margin is expected to improve by 300 basis points from 21.7% in FY2005 to 24.7% in FY2007. 
• At the current market price of Rs135 Aarvee is available at a price/earnings ratio (PER) of 8x FY2006E (5x FY2007E) and enterprise value (EV)/EBIDTA of 4.82x FY2006E (3.41x FY2007E). We believe the valuations are cheap and recommend a Buy on Aarvee with a price target of Rs206.